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This paper aims to evaluate whether frictions in credit markets are important for business cycles in the United States and the euro area. I modify the DSGE financial accelerator model developed by Bernanke, Gertler and Gilchrist (1999) by adding such frictions as price indexation to past inflation, sticky wages, consumption habits and variable capital utilization. When estimating the model using Bayesian methods, I find that financial frictions are relevant in both areas. According to the posterior odds ratio, the data clearly favor the model with financial frictions, both in the United States and the euro area. Moreover, financial frictions are larger in the euro area. [ABSTRACT FROM AUTHOR]

We investigate whether business cycle fluctuations affect the degree of excess sensitivity of private consumption growth to disposable income growth. Using multivariate state space methods and quarterly US data for the period 1965–2000, we find that excess sensitivity is significantly higher during recessions. [ABSTRACT FROM AUTHOR]

The article discusses the U.S. housing downturn and the credit crunch affecting economic activity, which were covered at the Federal Reserve's Jackson Hole Symposium. The underlying model for consumer spending implies a long-run solution for the log ratio of consumption to non-property income. Table showing the contributions of the credit conditions index and the ratio of net liquid assets to incomes is presented. The assumption that the scale of the decline in house prices is not model based rests on beliefs about further declines in interest rates.

This article focuses on the adequacy of the growth record of the American economy in recent years. Within the past several years the question of whether or not the economy is advancing at a rapid enough pace has become a matter of serious interest to the general public as well as the economic specialist. This is true to such an extent that the economy's allegedly inadequate growth rate became one of the major issues in the 1960 presidential election campaign. The question of the adequacy of the growth performance of the American economy has been brought forcefully to public attention from a number of responsible and professionally competent sources. The central question in any discussion of the adequacy of the growth record of the economy is that of criteria. Evidence based upon per capita data rather than growth rates suggests that the economy's performance from 1944 through 1960 was relatively unsatisfactory. Real gains of sizable proportions were recorded in living standards as reflected in per capita consumption outlays, but the primary source of such gains was not the sustained growth iii the economy as a whole, but a large-scale shift in the end-use of the nation's total output. As the 1950's drew to a close, however, the possibilities of further progress in living standards from this particular source were becoming exhausted. The same holds for any future increases in the other major components of the output total, particularly investment outlays. In retrospect, therefore, the era 1945-1960 was primarily one in which the fruits of the economy's massive ware tune surge of growth were adapted to peacetime uses. It was not, an era of satisfactory growth.

This article documents empirically that net firm entry robustly rises after a U.S. government spending expansion. We use this new finding to test the empirical validity of various model features that have been proposed to generate consumption crowding-in after positive expenditure shocks. Endogenous-entry models typically fail to generate the observed joint increase in consumption and entry. Model features that dampen the wealth effect, such as rule-of-thumb households or complementarity between labor and consumption in preferences, tend to reduce entry. We show that utility- or productivity-enhancing public spending can reconcile the model with our documented fact and performs well empirically. [ABSTRACT FROM AUTHOR]

Standard theoretical models predict that higher inflation expectations generate greater current consumer spending at the zero lower bound of interest rates. However, recent empirical studies using U.S. micro data find negative results for this relationship. We use micro data for Japan, which has experienced low interest rates for a prolonged period, to estimate ordered probit models with a variety of controls. We find robust evidence supporting the prediction of standard models: survey respondents with higher expected inflation tend to indicate that their household has increased real spending compared with 1 year ago but will decrease it in the future. This relationship appears to be stronger for asset holders and older people. ( JEL E20, E21, E30, E31, E50, E52) [ABSTRACT FROM AUTHOR]

In his article, professor Wallace C. Peterson advances the hypothesis that the primary source of the substantial growth in real consumption per capita since World War II was a shift in the end use of the nation's total output rather than a growth in real Gross National Product per capita. The picture that this article develops conflicts sharply with the one presented by Peterson. Specifically, it is the author's contention that the hypothesis of a shift of resources in the postwar period only appears to be supported by the comparisons Peterson made because of the selection of the periods to be measured and the general overstatement of wartime production in terms of its peacetime equivalent. Where Peterson finds a bulge in real GNP per capita during World War II and a very low rate of increase in the postwar period, we find a continuous increase in real GNP per capita throughout the war and postwar periods. There is one major recommendation with which the author is certain Peterson would join. It is clearly evident that the U.S. would improve its growth performance if it were to provide the aggregate demand required to achieve the potential output we are capable of producing.